Lessor Accounting with Unguaranteed Residual Value Edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 5 years. The lease is noncancelable and requires annual rental receipts of $1 00,000 to be made in advance at the beginning of each year.2. The equipment costs $313,000. The equipment has an estimated life of 6 years and, at the end of the lease term, has an unguaranteed residual value of $20,000 accruing to the benefit of Edom.3. Davis agrees to pay all executory costs directly to a third party. 4. The interest rate implicit in the lease is 14%.5. The initial direct costs are insignificant and assumed to be zero. 6. It is probable that Edom will collect the lease payments.Required: 1. Next Level Assuming that the lease is a sales-type lease from Edom's point of view, calculate the selling price.2. Prepare a table summarizing the lease receipts and interest income earned by Edom.3. Prepare a table showing the accretion of the unguaranteed residual asset.4. Prepare journal entries for Edom, the lessor, for the years 2019 and 2020.

Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 2E: Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement...
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Lessor Accounting with Unguaranteed Residual Value Edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis beginning January 1, 2019. The lease terms, provisions, and related events are as follows:

1. The lease term is 5 years. The lease is noncancelable and requires annual rental receipts of $1 00,000 to be made in advance at the beginning of each year.
2. The equipment costs $313,000. The equipment has an estimated life of 6 years and, at the end of the lease term, has an unguaranteed residual value of $20,000 accruing to the benefit of Edom.
3. Davis agrees to pay all executory costs directly to a third party.

4. The interest rate implicit in the lease is 14%.
5. The initial direct costs are insignificant and assumed to be zero.

6. It is probable that Edom will collect the lease payments.
Required:

1. Next Level Assuming that the lease is a sales-type lease from Edom's point of view, calculate the selling price.
2. Prepare a table summarizing the lease receipts and interest income earned by Edom.
3. Prepare a table showing the accretion of the unguaranteed residual asset.
4. Prepare journal entries for Edom, the lessor, for the years 2019 and 2020.

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